Session 4 Global Enterprise and Competition4374

8/13/2019 Session 4 Global Enterprise and Competition4374

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Session 4

Global Enterprise and Competition66.511.202Fall 2007

Ashwin Mehta, Visiting Faculty


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Session 4

International Strategy,Structure &Integration

Corporate/GlobalStrategy

CorporateStructure &Integration

Business Strategy

BusinessStructure &

Integration

Strategy --- Global to Regional/Local


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Session 4

Corporate Strategy FrameworkCorporate strategy

vision, goals, objectives

building and exploitingcorporate advantage(resources)

Value creationone time Vs ongoing(businesses)

Structure, Systems andProcesses

For coordination andcontrol

Industries


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Session 4

Hierarchy of Strategy

Corporate

Business

Functional

GrowthStability

RetrenchmentPortfolioParenting

Competitive (Cost, Differentiation)CooperativeBusiness ecosystem

Functional plans &IntegrationLeadership, Followership


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QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY

Corporate-level strategyshould ask

Business-level strategy should ask

In which markets do we competetoday?

In which markets do we want tocompete tomorrow?

How does our ownership of abusiness ensure itscompetitiveness today and in thefuture?

How do we compete in thismarket today?

How will we compete in thismarket in the future?


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Session 4

CorporateStrategy

Directional

Portfolio

Parenting --- businesses, build, synergies between businesses

GrowthConcentration

Diversification

Vertical

Horizontal

Concentric

Conglomerate

I nvest

M & A

Alliances

Leveraged Gr owthStability

Retrenchment

---- multiple businesses, products --- analysis to lead to Directional strategyBCG matrix, GE Business Screenmarket share, industry attractivenessQualitative and quantitative


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Growth Strategy Options

1. Organic Growth Investments in assets required to grow

I nvest in f actor ies. Machinery, ski lls, etc.Time to reap benefi ts? Risks? Changing environment

2. Acquisition buy necessary assets --- tangibles andintangibles

Upfr ont payments, Integration issues, unpredictable retur ns

3. Alliances partner with companies to complementTypically Buyer-Seller r elationshipsTightl y coupled relationship, too much legal, li mited flexibil ity

4. Leveraged Growth network of asset owners, orchestratedby A Mobilizer

Loosely coupled relationshipGoverned by market based economic incentives, not legal agr eements

Leveraged Growth: Expanding sales without Sacrificing Profits, John Hagel, HBR 2002


8/50Session 4http://www.lifung.com/


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Founded in Guangzhou, the PRC in 1906, the Li & Fung Group is amultinational group of companies driving strong growth in threedistinct core businesses - export sourcing through Li & Fung Limited,distribution through IDS and retailing through CRA and other non-listed entities. The Li & Fung Group has a total staff of over 24,000

across 40 countries worldwide, with a revenues of over US$8.5 billionin 2005.

The Group's export trading arm is Li & Fung Limited one of thelargest export sourcing firm that manages the supply chain of high-volume, time-sensitive consumer goods through its office network inclose to 40 countries.

Li & Fung

http://www.lifung.com/
http://www.lifung.com/http://www.lifung.com/


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As a Supply Chain M anager across many producers and countr ies, Li & Fungprovides the conveni ence of a one-stop shop for customers through a TotalValue-Added Package: from product design and development, through r awmaterial and factory sourcing, production planni ng and management, quali ty

assur ance and expor t documentation to shi pping consoli dation.


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An impressive financial performance

(in HK$)

2,005 2,004 2,003 2,002 2,001 2,000 1,999 1,998 1,997 1,996Sales 55,617,374 47,170,601 42,630,510 37,281,360 33,028,575 24,993,018 16,297,501 14,312,618 13,345,722 12,513,857

Y-O-Y% 17.91% 10.65% 14.35% 12.88% 32.15% 53.35% 13.87% 7.24% 6.65%Op Profits 1,884,600 1,556,036 1,251,986 1,137,025 668,985 793,268 595,305 471,921 361,490 302,075% of sales 3.39% 3.30% 2.94% 3.05% 2.03% 3.17% 3.65% 3.30% 2.71% 2.41%

Equity 4,624,801 4,709,435 4,190,473 3,786,469 3,430,781 3,361,916 1,143,221 1,337,485 1,163,644 1,054,894Debt 753,192 509,487 64,094 69,199 65,955 137,642 414,868 397,058 400,000 283,431Debt/Equity 0.16 0.11 0.02 0.02 0.02 0.04 0.36 0.30 0.34 0.27

http://www.lifung.com/investor/index.html


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How?

Since its founding, in 1906, Li Fung family owned Tradingcompany

Acting as a broker between manuf actur ers and buyers in ApparelsM argin pressur es as with dir ect l inks between buyers and manufacturers

Mid-1970s remade the company F rom brokerage (connecting 2 points) toan orchestrator connecting and coordinating many dif ferent l inks

of suppl iers and buyersowns no factoriesowns no transportation equipment to ship material in various productionstagesprivil eged access to 7,500 supply and manufactur ing companiesaround the WorldCore competencies: deep knowledge of apparel market

Leverage other companies assets to grow!


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Remaking of the Company

Organization change from traditional geographical to customercentric structures

dedicated divisions serve largest apparel designers (L aur a Ashley,Abercrombie & F inch, L evi Strauss, etc.

other divisions focus on smaller customers

Each division run by lead entrepreneur, with deep understanding ofcustomers needs

kept relatively small $30 to 50 mil l ion in r evenue

Supply side up-to-date information on thousands of supplierscapability and performance

Al locate work across the network; give in-depth f eedback to fur ther i mproveperformance

Knowledge of supply chain makes the Company tailor it to meet thecustomer need .

can begin production withi n hours after r eceiving the order from a customerover the I nternet!


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Session 4

Global Value Added

Idea DesignRaw Material

Sourcing

ConsolidationLogistics

QualityControl

Outsourcemfg. to

network ofsuppliers

FindingProduction

Partner

Customernetwork of

retail chains

Customer(Traditional

Trading House)


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Session 4

What are the sources of Li & Fungs value added? Providing integrated supply-chain management

through an extensive network Reducing customer inventory

Price and quality control Delivery and logistics management IT network: production and dist. mgmt. Front end: design, engineering, production

planning Back end: quality control, logistics Sourcing, raw materials, components Extensive manufacturing network (3000

factories, over 1 million workers)


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Creates Li & Fung Distribution More customers in Europe Greater scale and adds production capacity Adds new sources of supply Changes IBS from introducing agent between clients and

manufacturers to a higher margin sourcing company

Import business fills gaps Additional entry into retail Fills in the mosaic by extending sourcing and distribution

networks

What does merger with Inchcape dofor Li & Fungs strategy?


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Li & Fungs strategy maximizes global valueadded:

Supplier network of quality manufacturers withextensive set of relationships

Li & Fung coordinates supply chain for aspecialized set of a products (textiles, toys)

Customer network of large retail chains(Abercrombie & Fitch, Gymboree)

Li & Fung consolidates demands andconsolidates supplies, establishes prices,coordinates exchange, balances supply anddemand, allocates products.


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Li & Fungs supplier networks optimize: Gains from trade taking advantage of

economies of scale of suppliers Gains from trade taking advantage of

comparative advantages of countries in thesupply chain constant location adjustment

Costs of trade taking advantage of bestcombination to reduce costs of transactions,transportation, tariffs, and time

Combining elements of supply chain tomaximize gains from trade net of costs of trade


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Other Examples of Orchastrators

Nike (own process network)

Cisco (Semi Closed Network)

Wal-Mart (Own process network)

Technology Systems Integrators (such asEDS, IBM) created a Global network todeliver solutions


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Session 4

Business Strategy Considerations:

Arenas Where will we be active?

Vehicles How do we get there?

Differentiators How will we win?

Staging What speed and sequence?

Economic Logic How will returns be obtained?


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Evaluating Corporate Strategy --- Five Tests:

VisionInternal ConsistencyExternal Fit

Corporate AdvantageFeasibility


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Strategy Formulation process

Hierarchy of Strategy---multidimensional view

Corporate Global

Business Regional

Functional Local (Country-level)


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STRATEGIES FOR DIFFERENT PHASES OF THE INDUSTRY LIFE CYCLE

Decline

Mature

Embryonic

Growth

Phases of industrylife cycle

Arenas Vehicles Differentiators Staging Economic Logic

Local InternaldevelopmentAlliances to securemissing inputs ordistribution access

Target basic needs,minimaldifferentiation

Tactics to gainearly footholds Prices tend to be high.Costs are also highFocus is on securingadditional capital tofund growth phase.

Penetration intoadjacent markets

Alliances forcooperationAcquisitions intargeted markets

Increased effortstowarddifferentiationLow cost leadersemerge throughgaining experienceadvantages and scale

Integrated positions requirechoice of focusingfirst on cost ordifferentiation

Margins can improverapidly because ofexperience and scalePrice premiums accrueto successfuldifferentiators

GlobalizationDiversification

Mergers andacquisitions resultin consolidation

More stable positionsemerge acrosscompetitors

Choosinginternationalmarkets and newindustrydiversification;

need rationalsequencing

Consolidation results infewer competitors(favoring highermargins) but declininggrowth demands cost

containment andrationalization ofoperations.

Some arenas may beabandoned if declineis severeFocus on segmentswhich provide most

profitability

Acquisitions fordiversifying movesDivestitures to exitfor somecompetitors

Rationalizing cost


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Strategy Formulation process

Hierarchy of Strategy

CorporateBusiness

Functional


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Functional Strategies

Marketing Technology/Development

Operations Production

Logistics Purchasing

Servicing Human Resource

Finance Information Technology


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Functional Strategies --- Considerations

Core Competency

Integration

Timing (first mover Vs Follower)

In-house Vs Outsourcing

Strategy Options and Scenarios Evaluation


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Session 4

Global Regional Local

Regional teams are the key to Companys Globalizationinitiatives

Jeffrey Immelt, CEO, GE, HBR 12/2005

Global leverage is about playing 3-D chess- at theglobal, regional and local levels

John Manzer, CEO International, Wal-Mart, HBR 12/2005

Regional strategies for Global leadership*

*: Pankaj Ghemawat, HBR 12/2005


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Session 4Source: Global Marketing Management, Kotabe and Helsen Session 1


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Session 4

LENOVO
http://assets.cambridge.org/97805218/80817/cover/9780521880817.jpg


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How did Lenovos home country affect its initialdevelopment and management strategy?

Domestic strategy-customer focus

Economies of scale and experiencefrom large domestic market

Pricing strategy above domesticcompetitors and belowinternational entrants

Strong domestic brand

Retail outlets and 19 branch offices

Distribution (2000 distributors andresellers)

Yang Yuanqing

Vice Chairman,President and CEO


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From humblebeginnings


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PC-Sales in China: Market Shares 1994

Source: Luo, Yadong, Multinationals in China

, Copenhagen 2000


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Chinese PC-Market (US$ million)

1996 1997 1998 (e)

Import Market 87 157 221

Local Prod. 4,218 5,761 8,114

Exports 439 502 707

Total Market 3,866 5,416 7,628

Imports (US) 32 63 88


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PC-Sales in China (Millions of Units)

1996 1997 1998 (e

Foreignbrands

0.14 0.21 0.26

US brands 0.65 0.77 0.95

Chinesebrands

1.32 2.05 2.79

Total 2.11 3.03 4.00


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The Chinese Hardware Market 30% Average Annual

Growth Rate More than 50% of all

buyers buy units between$1,200 and $1,800

What customers value: Personal Relationships After Sales-Service

Tariffs (MFN): 15%To be lowered.

Value-Added Tax: 17%

Market Segmentation byindustry: Finance 33% Telecom 17% Government 10%

Transportation 10% Power/Petrol 4% Education 6% Distribution 4% Manufacturing 8%

Other 8%


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Did Lenovo derive any advantages/disadvantagesfrom its home country?

Production cost advantage from labor market relativeto international competitors not manufacturing inChina

Government connections compared to global entrants

Local distribution system hard to copy, Continuedtransaction costs for international companies

Would DELLs direct sales approach fit Chineseconsumer market?


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What threats does Lenovo face, and whatcompetitive advantages were sustainable?

Lowering of trade barriers DELL and other international businesses started producing in

China

DELL offered direct sales and marketing Entrants have global brands Entrants have access to latest technology Other Chinese companies offered low-cost clones Falling component prices affect Legends pricing strategy Growing importance of notebooks


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How did Legend updateits strategy?

Local tailoring of products andbrands to compete withinternational companies

Partnerships with globalcompanies Launches Lenovo brand Product diversification into cell

phones and other consumer

products

Adjustment of pricing policies Expansion of domestic

distribution Expansion in business services First database server in China


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Lenovo Notebook

Configuration Soleil8100DT/8200DT

CPU Intel Pentium II266/300MHz(1.7v)

Monitor 14.2" TFT, XGA1024*768*16M

Main Memory 80MB/144MB,expandable to 144MB

2*144Pin DIMM Cache L2Cache 512 KB

24x CD-ROM, USB, PCMCIA,7 pounds


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Lenovo organization 1999


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Lenovo Company Structure 2003


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What were strategic reasons behinddecision to expand internationally?

Greater competitive challenges to domestic marketfrom global companies

Seeking greater economies of scale Chinese manufacturing gives cost advantage that

can be used to expand to global markets Benefits of expanding sales for supporting R&D

Benefits of developing global brand


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Launching a new global brand.
http://www.legendgrp.com/index.htmlhttp://www.lenovo.com/us/


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Why did Lenovo choose to expand by IBMacquisition?

Lenovo becomes the third largest computer makerin the world Temporary access to IBM brand Access to Thinkpad brand

IBM laptop and PC technology Access to suppliers Increased market power from merger Access to management
http://www.lenovo.com/us/http://www.lenovo.com/us/


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The IBM acquisition

Separately, Lenovo and the PC Division possessed outstandingdevelopment, manufacturing, marketing and customer-carecapabilities, with different areas of expertise and emphasis in theenterprise and consumer markets.

Together, as the new Lenovo, those strengths are combined into

a growth-oriented, global enterprise, strategically focused on thePC space and more committed to innovation in IT clients thanany other company. We have a passion for innovation that isunique in our industry.


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The IBM

acquisitionChange of headquarters to Purchase, N.Y. Now Raleigh, N.C.William J. AMELIO President andChief Executive Officer
http://www.lenovo.com/us/


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What challenges lie ahead forLenovo?

Lenovo brand products make worldwide debut (3000 family)

Head-to-head competition with HP and Dell

Challenges from low-cost competitors, Acer and others

More?


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Assignment 2Due November 29, 2007

GO TO THIS LINK http://topics.nytimes.com/top/news/business/companies/claiborne_liz_inc/index.html?adxnnl=1&inline=nyt-org&adxnnlx=1186160600-Jqre2Ppd+F3BgUzNGlfiWw

REVIEW THE ARTICLE, DO A WEB RESEARCH ON COMPANIESDISCUSSED IN THE ARTICLE, AND ADDRESS THESE QUESTIONS:

(YOU SHOULD WRITE AN INTRODUCTION/CONTEXT BEFOREADDRESSING THESE QUESTIONS)

1. What was Liz Claiborne value chain prior to Mr. McCombs arrival?Discuss its implications.

2. How is Mr. McComb changing the company directions, why and what arethe implications (include competition implications)?

3. Review Liz Claiborne last 3-year financials (create a common size incomestatement), analyze trends and comment.

4. What are their major business segments? Discuss US Vs Internationalbusiness (including revenues).

YOUR REPORT MUST BE BETWEEN 1000 AND 1500 WORDS AND MUSTINCLUDE SOURCES REFERENCED.

Session 4 Global Enterprise and Competition4374

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